Thank You

Error.

Hedge funds can't catch a break. After posting lousy returns last year, the industry is getting left far behind in the frothy start of 2013. The average fund has boosted its leverage this year, but eked out returns of just 3%, less than half the gain of the Standard & Poor's 500. Where oh where has alpha gone, if it ever existed in the first place?

There's really nothing good to say about the results of early 2013. In fact, one in every 10 hedge funds is generating an absolute loss, says Goldman Sachs in its "Hedge Fund Trend Monitor." The report analyzed the positions of 725 hedge funds with $1.3 trillion in gross assets.

Think about it. The hedge-fund investor pays 2% of assets and 20% of the profits—and for what? Savvy mining for hidden gems, perhaps? Hardly. The mostly commonly held stocks among hedge funds are anything but hidden. Numero Uno, according to Goldman, is
AIGAIG -0.635363396869673%American International Group Inc.U.S.: NYSEUSD64.12
-0.41-0.635363396869673%
/Date(1438376510094-0500)/
Volume (Delayed 15m)
:
7042632AFTER HOURSUSD64.24
0.120.18714909544603867%
Volume (Delayed 15m)
:
224368
P/E Ratio
10.891980499074215Market Cap
85497292314.6226
Dividend Yield
0.7797878976918278% Rev. per Employee
1027080More quote details and news »AIGinYour ValueYour ChangeShort position
(ticker: AIG), a logical play on turnarounds in housing and the economy. No. 2 is another stock you might have heard of—
Google
(GOOG). Until recently,
AppleAAPL -0.8743973196044782%Apple Inc.U.S.: NasdaqUSD121.3
-1.07-0.8743973196044782%
/Date(1438376400350-0500)/
Volume (Delayed 15m)
:
41225145AFTER HOURSUSD121.45
0.150.1236603462489695%
Volume (Delayed 15m)
:
1659808
P/E Ratio
14.006928406466512Market Cap
691740216377.936
Dividend Yield
1.7147568013190437% Rev. per Employee
2409500More quote details and news »AAPLinYour ValueYour ChangeShort position
(AAPL) had been the top holding, but since that stock has been declining and Google has been rising, the hedge funds have lightened up on Apple and loaded up on the other one. No dummies, they.

"Animal spirits are coming back, but it's a totally different landscape than the time before the crisis," says Ferenc Sanderson, chief operating officer with Cranwood Capital, based near Cleveland, which manages $95 million in Treasuries. "It's a much tougher market to trade. The retail investors are all but gone, and what's left are unpredictable algorithm traders and unpredictable volumes."

You might expect global-macro traders to be big winners in uncertain markets like these, where broad strategies often win out. But they've been faring worse. Last year the typical global-macro strategy delivered 4.6%, according to the Dow Jones Credit Suisse Global Macro Hedge Fund Index. By comparison, the average large-cap core mutual fund made 14%—and no one has ever paid 2-and-20 to get into one of those.

STANLEY SPORKIN is a thoroughly decorated Wall Street cop. He spent seven years as the Securities and Exchange Commission's enforcement boss, then put in 14 years as a federal judge. So, what does Sporkin make of the current regulatory scene?

Too little, too late.

In a recent speech at an event sponsored by George Washington University Law School, Sporkin decried bureaucratic bunglings and lax oversight in the years leading up to the financial crisis. It all led, he said, to unnecessary destabilization through the creation and rampant trading of esoteric instruments like credit default swaps.

Rules Sarbanes-Oxley and Dodd-Frank don't do much. "Regulation from behind is a prescription for failure," he said. What's really needed, he suggested, is for Congress to support the agency's status as the referee that protects and maintains the world's deepest and fairest capital market. Sounds like a plan to us.